Credit Good, Debt Bad

Credit Good, Debt Bad

I first learned about credit just after high school. First credit card I ever opened was a secured credit card for a $100.

A secured card was the only thing I could get approved for at the time, since I didn’t have established credit.

By using a secured credit card, I was able to safely build my credit history just like a regular (unsecured) credit card.

The only difference was that my limit was set by how ever much I deposited to an account at the bank.  I decided to start at the minimum of $100.  This gave the bank assurance in the event of a default. 

For example, if you make a purchase this month for $50 with a secured card, on your next bill you’d pay the minimum required or pay in full. Every month that you make a payment, the bank reports it to the credit agencies.

If you default, the bank will take the original $100 you deposited as collateral, and report that to credit agencies, too.

Banks still offer secured credit cards, and, in my opinion, I think it’s still the best way for a young adult to build credit. It’s also a good way to repair bad credit.

I worked to build my credit worthiness and credit score overtime. The concept just clicked for me. I checked my credit religiously.

Debt = Bad Pain

Eventually, I was able to get an unsecured credit card, but, as life would have it and before I knew it, I found myself in an over leveraged situation: debt. At one point, I think I was nearly $20k into it.  

I hated the feeling. It felt like I had no control over my life, no freedom. I worked to pay my debts. It was a total burden, sure, but, it was my responsibility and knew I had to take ownership of it. 

Besides, if I didn’t take ownership, I knew my credit would have been affected negatively for a long time to come. I knew that was not an option. So I set out to get my freedom back.

I also hated paying more than I owed in the form of interest to the bank. So I found a way to take advantage of opening  new credit cards and transferring balances between them for introductory rates of 0% for 12, 15, 18-months as I worked to pay off the balance. I paid more when possible and it took me a few years to pay it all off.

Say No to Debt

Since then, I’ve paid off my credit card balances in full every month. Because the pain of being in debt was real, it was bad-pain, and I’ve done everything in my power to avoid it.

To know that I don’t owe anything to anyone is a powerful feeling. 

If you find yourself in debt, you need to own it and pay it off as soon as possible. If times get tough, pay the minimum required until you get back on your feet. As long as you pay on time, you won’t ruin your credit worthiness. 

You really have to be careful with credit, though. If you’re not paying attention, credit card balances along with interest and fees can really start to grow to a dizzying sum. To a point of no return for some people.

It’s crazy to think that if you have a $2,000 credit card balance at 18% interest rate, and you only make the minimum payment of 2% it will take you 30 years to pay it off. Insane!

It’s not all bad, though.  If you focus on building your credit intentionally, avoid over spending, pay off credit cards in full, monitor your credit carefully, then it can also serve as your greatest financial ally whenever you need it. 

Stay in control! Avoid debt and over consumption. 

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